Mudharabah is a form of cooperation in Islamic economics that involves two parties: the capital owner (shahibul maal) and the business manager (mudharib). Under this contract, the capital owner provides the business manager with capital to run the business, and they agree to share the profits according to the agreed ratio. On the other hand, if there is a loss, the capital owner will bear the financial loss, whereas the business manager will only bear the loss of time and energy.
However, questions arise regarding the permissibility of requiring collateral in a mudharabah contract. This article will discuss the ruling on requiring collateral in a mudharabah contract from a Shariah perspective.
Definition of Collateral in the Context of Mudharabah
In a mudharabah contract, the business manager submits a collateral or guarantee to the capital owner, ensuring proper and agreed-upon use of the provided capital. This collateral can be in the form of fixed assets or other valuables that have economic value.
Ruling on Collateral in Mudharabah Agreements
According to the National Sharia Council of the Indonesian Ulema Council (DSN-MUI), requiring collateral may be permissible to protect the rights of the capital owner (shahibul mal). This is especially relevant in the modern context where business risks can be higher and more complex. Collateral can be considered a tool to ensure that the business manager acts responsibly and in accordance with the initial agreement.
The National Sharia Council of the Indonesian Ulema Council (DSN-MUI) no. 07/DSN-MUI/IV/2000 mentions this in their fatwa on Mudharabah (Qiradh) Financing, as follows:
“7. In principle, in mudharabah financing there is no collateral, but so that mudharib does not deviate, LKS can request collateral from mudharib or third parties. Only if the mudharib has proven to have violated the agreed-upon terms in the contract can LKS withdraw this collateral.
The National Sharia Council of the Indonesian Ulema Council (DSN-MUI) no. 115/DSN-MUI/IX/2017 mentions the following:
“4. The loss of the mudharabah business shall be the responsibility of the shahib al-mal unless the loss is caused by the mudharib taking actions that include at-ta’addi, at-taqshir, and/or mukhalafat ash-syuruth, or the mudharib violates the restrictions in the mudharabah muqayyadah.”
Practical Example 1
A small businessman named Ahmad wants to open a new branch of his clothing store. Ahmad does not have any business capital. Ahmad meets an investor named Budi, who agrees to provide capital via a mudharabah contract. However, Budi demands Ahmad’s personal house certificate as collateral to ensure the proper and agreed-upon use of the provided capital. In this scenario, Budi necessitates collateral to safeguard his investment, to which Ahmad acquiesces due to his self-assured business acumen and possessions, including his personal house certificate.
Practical Example 2
Zain, a technology entrepreneur, owns an innovative technology startup; he plans to expand his business by conducting research and developing new products. Zain applies for mudharabah-based Islamic financing to an Islamic venture capital. The Islamic venture capital agrees to provide the financing, but it also requires collateral in the form of some personal shares owned by Zain and a post-dated current account as security. The Islamic venture capital argued that this collateral was important to protect their capital given the high risk in the technology industry. Zain agreed to the condition because he believed that with the additional capital from the Islamic bank, his business would grow rapidly and be able to provide significant profits.
The law of requiring collateral in a mudharabah contract, according to the National Sharia Council of the Indonesian Ulema Council (DSN-MUI), is permissible in order to protect the interests of the capital owner in the event that the manager commits misappropriation, negligence, exceeds normal limits in business activities, or violates the conditions in the condition of mudharabah muqayyadah. Therefore, wisdom and prudence are required in setting collateral requirements and should be tailored to the context and specific needs of the business cooperation being undertaken. May Allah Ta’ala make it easier for us to carry out Shariah-compliant business partnerships.
Wallahu a’lam
